Albania is a parliamentary republic. Executive power rests with the Government. Albania held a parliamentary election on 25 June 2017.
Albania together with Croatia joined the North Atlantic Treaty Organization (NATO) on 1 April 2009. In order to become a NATO member, Albania undertook several reforms in areas such as political, military and security-sector. Priorities were set to meet democratic standards, reduce corruption, fight organized crime, improve public administration, and enhance good- neighborly relations.
In June 2014, the EU granted candidate status to Albania. Becoming an EU candidate country has a number of political and economic effects for Albania. The next important step will be the opening of accession negotiations; however, this will depend on further specific and sustainable reforms in Albania and is subject to agreement from all EU Member States.
The Republic of Albania has been nurturing an attractive business climate by offering investment incentives in the form of more favorable tax regimes compared to other EU countries, bilateral double-taxation and multilateral trade agreements, cheap and effective labour force. Albania has generally strived to achieve a high level of foreign trade liberalization through being a signatory of five trade agreements – EFTA, CEFTA, SAA (Stabilisation and Association Agreement) with EU member-states, Turkey and Ukraine. Furthermore, it signed agreements for the avoidance of double taxation and investment protection treaties with many European countries.
The Stabilization and Association Agreement guarantees the alignment of national legislation with EU laws, while conditions for investment and business are becoming recognizable and predictable for foreign investors.
1. Investment laws – Albanian legislation related to investment is comprised of Law No. 7764, dated 02.11.1993 for Foreign Investments (“Law on Foreign Investment”), bilateral and multilateral international treaties aim to enhance investment environment in the Republic of Albania and provide equal treatment for foreign and domestic investors. The legislation states that foreign investments in the Republic of Albania are not conditioned upon prior authorization, but are permitted and treated based on conditions no less favourable than those afforded to domestic investments in similar circumstances, except land ownership, which is regulated by a special law. The Government also provides numerous incentives, such as tax breaks and subsidies, to attract foreign investment.
2. Corporate law - Foreign investors wishing to establish a business presence in Albania have an opportunity to incorporate a branch office or representative office of the foreign company. In general, a business presence in Albania can be established within 1 working day. There are 4 forms of business entities: general partnership, limited partnership, limited liability company and joint stock company. Additionally, a foreign investor may create a local presence by Branches and Representative Offices of Foreign Companies.
3. Tax regime - The tax system of the Republic of Albania consists of a package of tax laws, tax treaties with other countries, guidelines, regulations, methods for the assessment of taxes, the conditions to ensure their payment, as well as forms and methods of tax control and imposition of liability for violation of tax legislation. The Albanian tax legislation provides for the following main taxes: • Corporate income tax at 15% but certain conditions apply • Personal income tax • Withholding tax • Value added tax is set at 20%, except for accommodation services where it is only 6%, while certain fields are not subject to VAT at all • Excise duties • Customs duties • Local taxes • National taxes.
4. Free trade regime - Albania is a member of WTO since 2000 and applies the WTO rules on import licencing. Albania is also member of the Stabilization and Association agreement (SAA) with the EU, which liberalized trade between the EU and Alania in terms of tariff barriers for agricultural and industrial goods. Albania is a member of the multilateral Central European Free Trade Agreement (CEFTA), along with North Macedonia, Montenegro, Kosovo, Moldova, Serbia, and Bosnia and Herzegovina. Albania also has a Free Trade Agreement with Turkey, which was signed in 2006 and entered into force in 2008. In 2009, Albania signed a Free Trade Agreement with the European Free Trade Association (EFTA). EFTA member states include Iceland, Liechtenstein, Norway and Switzerland. The agreements with Liechtenstein and Switzerland entered into force in 2010, and the agreements with Iceland and Norway entered into force in 2011.
5. Labour Law - The Law no. 7961 The Labour Code of the Republic of Albania (“Labour Code”) represents the main legislative source, along with supporting law regarding civil servants, security and health at work, work inspection, gender equality, as well as for foreigners, regulate the relations between employees and employers by individual agreements and collective agreements. The Labour Code is generally in line with international labour standards and as such applies to both domestic and foreign investments equally. Employment contracts in Albania are prescribed within the Labour code as full-time and part-time contracts; limited and unlimited duration contracts; employment agency contracts; individual and collective employment contracts; home-based employment contracts; commercial agent contracts; and apprenticeship/internship contracts. The procedure for obtaining residency and work permits as well as temporary residence are regulated by the Law on Foreigners and are issued by the Directory of Migration, Labour Office, at the Ministry of Social Wellness and Youth.
6. Visa regime - The visa regime for foreigners is determined according to Law 108/13, "On Foreigners", and Law 513/13, "On Foreigners' Treatment", as amended. Albania grants visa-free entry to EU member countries, most signatories of the Schengen Agreement, as well as US and UK passport holders, and residence in them for up to 90 days within a 6-months period. Foreigners from Saudi Arabia, Belarus, Qatar, Oman, Russia, China, Thailand and Bahrain can enter the Republic of Albania without a short-term visa (Type C) for tourism purposes for the period 1 April 2019 to 31 October 2019.
7. Public Procurement in Republic of Albania - Public Private partnerships and concessions, as well as public procurement are governed by Law no.9643/2006 “On Public procurement” as amended and law no.125/2013 “On Concessions and PPP”. Procurement procedures are conducted electronically via the Albanian Public Procurement Agency (“APP”) at www.app.gov.al. These include the publication of contract notice and Request for Proposal documents, the classification of bidders and announcement of winning bidder
|Member of CEFTA, EFTA and multiple Free-Trade Agreements|
|Subsidies for investors|
|Low tax rates|
|Wide range of DTTs|
|Wide range of employment set-ups|
Starting from 1 January 2018, all services offered by four and five star hotels, provided they hold the special status, a trade registered mark and a worldwide recognized brand name, shall be subject to a reduced VAT rate of 6%. Targeting to promote the Albanian tourism, this change is a significant incentive for chain of registered trademarks’ hotels which may plan expanding their activities in the Balkans. Currently, any entity offering services in tourism activities regardless of the hotel rating are allowed to apply the reduced rate of 6% only for accommodation services.
We bring you here the current tax incentives policy snapshot for Albania.
In addition, four-star and five-star hotels, shall be exempt from CIT (Corporate Income Tax) for a period of 10 years provided they have met the criteria for obtaining the special status up to December 2024. The effects of CIT exemption apply upon initiation of the business activity but not later than 3 years after receiving the special status. A decision of Council of Ministers shall determine the terms, conditions and procedures for implementing this provision.
Four-star and five-star hotels, holding the special status, a trade registered mark and a worldwide recognized brand name shall be exempt also from the payment of the tax on real estate and infrastructure tax.
In the near future, the Albanian Parliament is expected to approve also some changes to the Law on Tourism aiming to include additional definitions for accommodation structures and investors in the tourism sector. According to the expected changes, in order to qualify as a four-star and five-star hotel, the investment value should be respectively at least EUR 8 million and EUR 15 million. Accommodation structures could be hotels or resorts or a combination of them. Investors of four-star and five-star hotels with a special status should sign an agreement with the responsible Ministry in charge for tourism, where should be detailed the mutual obligations, project development terms, value of the project, limitations on transfer of the investment or part of them as well as consequences deriving from noncompliance with the agreement.
CIT and customs duty incentives for Information Technology Companies
Starting from 1 January 2018, the CIT rate for - entities operating in the Information Technology (IT) sector and dealing with software development shall be 5%. Reduce of the current CIT standard rate of 15% to 5% is an important incentive which is expected to attract new or international software development companies to register in Albania. Moreover, the approved changes in the customs duty legislation, provide for reduced customs duty rates applicable on import of equipment and devices to be used in the course of their ITC business activity.
Activities to be considered as related to the software development shall be determined separately in a decision of Council of Ministers.
Taxation of profit distributions or dividend payments
Based on Albanian tax legislation, dividends or profit paid by a foreign subsidiary owned by an Albanian entity are not included in the taxable income of the Albanian parent company.
Dividends or profit distribution paid by an Albanian subsidiary owned by an Albanian entity are exempt from withholding tax.
Tax incentives for solar panel systems
Entities and persons that produce or install solar panel systems may benefit from customs duties and value added tax exemptions on solar panel systems. When solar panel systems are produced or installed for producing hot water or for sanity purposes in buildings or technological processes in industry may be reimbursed for the customs duties paid on import of raw materials used for the production or assembly of these systems.
There are three active free economic zones in Albania, officially Technical and Economic Development Areas (TEDAs). Supervision of the zones falls under the Ministry of Economy, which selects the private developers and managers for the single zones through a public tender.
Types of incentives in Albania
|Incentives||Awarded aid||Eligibility criteria||Condition for use of aid||Length of incentives||Zone specific|
|No VAT on machinery||0% VAT.||Machinery costing >EUR 360 000.||The machinery must be targeted at increasing productivity||n/a||No|
|No excise on fuel||0% excise.||For oil-producing companies.||No further conditions||n/a||No|
|No VAT on import of cement and steel||0% VAT.||Aimed at construction of hydropower plants.||No further conditions||n/a||No|
|Assisted administrative procedures and red-tape reduction||n/a||- Investment in a “strategic sector”: power and mining industry, transport, electronic communications, infrastructure and urban waste, tourism, agriculture.- Investments above EUR 100 million.||- In the power and mining industry an investment must be >= EUR 30 million/50 million.- In the transport, electronic communications infrastructure and urban waste industry an investment must be >= EUR 30 million/50 million.In the tourism (tourist structures) industry an investment must be >= EUR 5 million and create at least 80 jobs or >= EUR 50 million.- In the agriculture (establishment of a large agricultural farm model) and fisheries an investment must be >= EUR 3 million and create at least 50 jobs or >= EUR 50 million.For the sector "economic areas", including its sub-sectors investment must be >= EUR 5 million/50 million.In the development priority areas an investment must be EUR 1 million and create at least 150 jobs or EUR 10 million and create at least 600 jobs.||n/a||No|
|Expropriation of immovable assets, and private property, for the development and execution of the strategic investment project|
|Exemption from customs duties and VAT on importing foreign goods||No custom duties and VAT exemption for all foreign goods imported in a free zone.||Being a company registered in a TEDA.||Undertake import activities of foreign goods.||n/a||Yes|
|VAT free||No VAT on Albanian goods aimed at TEDAs.||Being a company registered in a TEDA.||Import Albanian goods into a TEDA||n/a||Yes|
|20% deduction on capital expenditure||20% deduction on capital expenditure within 2 years.||Being a company registered in a TEDA.||Users and developers who invest in a TEDA within 3 years of its formation.||2 years||Yes|
|50% reduction on profit tax rate||50% reduction on 15% profit tax rate for 5 years.||Being a company registered in a TEDA.||Making profits.||5 years||Yes|
|Exemption from infrastructure taxes||No infrastructure taxes on new projects.||Being a company registered in a TEDA.||Building infrastructure within a TEDA.||n/a||Yes|
|Exemption from real estate taxation||No taxes on real estate.||Being a company registered in a TEDA.||Building new real estate in a TEDA.||5 years||Yes|
|Exemption from real estate transfer taxation||No transfer taxation on buildings.||Being a company registered in a TEDA.||Buildings must be transferred to a TEDA.||n/a||Yes|
|150% deduction of wages and social contributions||150% deduction of wages and social contributions for the first year, and subsequent new expenses compared to previous year also deductible by 150% in subsequent years.||Being a company registered in a TEDA.||Hiring workers during activity in the TEDA.||n/a||Yes|
|200% deduction of training costs||200% deduction of training costs for employees.||Being a company registered in a TEDA.||Providing training to employees.||10 years||Yes|
|200% deduction of R&D expenditures||200% deduction of R&D expenditures.||Being a company registered in a TEDA.||Conducting R&D activity.||10 years||Yes|
- Law on Establishment and Regulation of TEDAs (Law No. 9789, dated 19.07.2007)
- Decision No. 646 and 647 of the Council of Ministers dated 22.07.2015 for procedures on developer section and criteria for operators and fiscal incentives in the TEDAs.
- Decision No. 106 of the Council of Ministers dated 10.02. 2016 defines the zones, details infrastructure, activities and potential investment.
|Global Competitiveness Index||RANK 81|
|Ease of doing business||RANK 82|
|Starting Business rank||RANK 50|
|Global logistics report||RANK 88|
|Rank||Institutions||Infrastructure||Health||Skills||Labor market||Product market||Business dynamism||Innovation|
|EU - 27||0.209||0.205||0.207||0.213||0.216|
The attractive features of the area are the relatively undeveloped markets, the ability to be a first mover in many segments and continually positive economic growth in the region. Our overall experience has been quite positive.